Francis Lawall, left, and Heather Smillie, right, with Troutman Pepper Hamilton Sanders. Courtesy photos. Third Circuit Collapses Transaction to Avoid Fraudulent Conveyance
In a recent decision, the U.S. Court of Appeals for the Third Circuit employed such an analysis and ordered the unwinding of a transaction involving transfers which passed through multiple related parties.
September 09, 2024 at 11:32 AM
7 minute read
Bankruptcy
Although not always straightforward or consistent, federal and state laws regarding the recovery of fraudulent conveyances are well developed. However, when the transaction flows through several transferees, the analysis can quickly become complicated. In a recent decision, the U.S. Court of Appeals for the Third Circuit employed such an analysis and ordered the unwinding of a transaction involving transfers which passed through multiple related parties. See Kartzman v. Latoc (In re the Mall at the Galaxy), Case No. 23-1906 (3rd Cir. Aug. 7, 2024). This nonprecedential decision presents interesting facts arising from a loan essentially among "friends" and their businesses. The appeal itself arose out of a bankruptcy court decision involving the Mall at the Galaxy, Inc. The mall had incurred liabilities related to a $2 million loan made by a real estate company (Latoc) to a group of rubber recycling companies (the "PermaLife" entities). Despite its insolvency at the time, the mall repaid Latoc $592,875.03 before entering bankruptcy.
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